As Long as Trade Across Borders Is Unrestricted and Exchange

question 135

Multiple Choice

As long as trade across borders is unrestricted and exchange rates adjust freely, the purchasing power parity theory predicts that the exchange rate between two national currencies will adjust.In what time frame will the adjustment occur?  

• A) in the short run, to reflect the actions of arbitrageurs 
• B) in the long run, to reflect differences in the nations' price levels 
• C) in the long run, to reflect changes in the governments' trade policies 
• D) in the short run, to reflect the actions of speculators

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